Technology: A hunger for patents

Imagine this scenario: Dozens of competitors are thrown into an arena where they need to vie for a cornucopia of weapons which they then use to eliminate their competition to survive, with little or no help from the outside world. This scenario, which summarizes the popular book and movie “The Hunger Games”, equally describes the situation in which dozens of technology companies currently find themselves with respect to patents. Just as in the popular series, good decisions by competitors are often rewarded with success while ill-advised moves are potentially fatal.

That this is happening, and in a big way, is indisputable. Indeed, this scramble for patents and the consequences of all this ownership flipping dominates the IP headlines. Last year a consortium of companies including Microsoft, Apple and Oracle purchased a portfolio of 880 or so patents from Novell for a reported $450 million.

Also last year a consortium of companies again including Microsoft and Apple, with others, purchased a portfolio of about 6,000 patents and patents applications from bankrupt Canadian telecom equipment company Nortel for $4.5 billion (apparently, just as in the Hunger Games, competitors sometimes collaborate out of mutual interest). Google answered later in the year with its purchase of several thousands of patents from IBM as well as its acquisition of Motorola Mobility for a reported $12.5 billion, some of which went to the purchase of thousands of Motorola’s patents.

More recently, Microsoft purchased 925 patents and patent applications from AOL for over $1 billion, followed only a week or so later by its announcement that it will sell about two-thirds of these patents to Facebook. Next up is the auction of about 1,100 digital imaging patents by Kodak to the highest bidder through a process governed by the bankruptcy court.

Why is all this activity happening now? On the surface the explanation seems simple. A number of companies that invested heavily in research and development in various product areas over the past 20 years and had aggressive patenting strategies were not able to successfully commercialize these products and perhaps are now failing altogether. No longer needing them to fend off competition, these companies are now handing over control of these patents like batons to the next generation of companies—companies which generally are succeeding in the market but which may not have been aggressive in pursuing patent protection or perhaps didn’t even exist in that time frame to pursue protection.

More subtly, however, is that the seeds for this cornucopia of patents were planted through a series of legal decisions in the mid to late 1990s that expanded the scope of patentable subject matter to include software, business methods, ecommerce and the like. Then, in the heady days of the dot-com boom people and companies were pursuing patent protection on their business models in record numbers. These patents wound their way through the Patent and Trademark Office over the following years, at the same time that the companies filing them either abandoned the business concepts or simply failed to monetize them.

Because patents expire 20 years after filing, patents filed in the mid to late 1990s will be expiring in the mid to late 2010s, resulting in the present being the peak time for owners to sell or otherwise monetize them. One particularly nasty way companies monetize these patents is by selling patents to so-called patent trolls but keeping a license, since these trolls will then sue their competitors while they are free and clear. And that’s what’s happening now.

What should you do? If your company has a patent portfolio, even a modest one of only a handful of patents and applications, now would be a good time to explore putting them on the market. The question to ask yourself is whether those patents still cover technology your company is monetizing or which is being monetized by a competitor that has patents. If not, then the patents are quite likely more valuable in the hands of someone else who would be willing to pay for them. At the same time you might consider being in the market to acquire patents that do relate more closely to what you and/or your competitors sell.

So how do you proceed? An entire cottage industry has grown out of this activity, from brokers and agents who sell patents, to patent auction houses like ICAP, to patent aggregators like RPX, to, yes, even patent trolls. Which of the many options you choose depends on the overall goals of the sale and your company’s downstream interest in how the patents get used by the eventual owners.

In the coming weeks I will be addressing some of the special legal issues that have arisen from this frenetic buying activity, particularly with respect to antitrust law and the unique issues associated with standards essential patents. I also plan to address some of the efforts being undertaken to change patent law (yet again) to control or curtail the damaging effects of this activity, as well as some of the recent court decisions on key issues such as obviousness and damages which have a significant impact on patent portfolio valuations of patents.

Meanwhile, it’s important to keep in mind that how companies fare in this scramble to collect patents—the right patents—may very well determine the technology landscape in the years to follow. Indeed, may the odds be ever in your favor.